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Although cryptocurrencies have had a miserable year, the underlying technology, known as blockchain, may have a constant power. In particular, blockchain technology offers the possibility of transmitting money safely without the need for traditional banking networks. It also allows transparent and unchanging data storage. Simply put, it could allow faster money transfers and provide use outside the banking sector for data archiving. Its usefulness both inside and outside the financial sector is what makes the blockchain so intriguing.
That said, we asked three of our blockchain-centered contributors to name a company they're watching in November that they believe is at the height of this revolution. At the top of the list were the payment processors MasterCard (NYSE: MA), gigantic technological giant IBM (NYSE: IBM)and communications provider for investors Broadridge Financial solutions (NYSE: BR).
Image source: Getty Images.
Are hybrid networks the future?
Sean Williams (Mastercard): Sometimes it's the less obvious companies that can be the most intriguing. While some people would see the giant processing payments Mastercard as a company that would be threatened by the blockchain revolution – after all, blockchain aims to transfer money from point A to point B without using traditional banking networks – it is actually one that could prosper at because of it.
One of the most exciting revelations on this front came in mid-July, when the U.S. Patent and Trademark Office granted a Mastercard patent "for the connection of blockchain-based assets to fiat currency accounts". In other words, this means that it would allow Mastercard to build a hybrid payment network that would process blockchain currencies on traditional payment networks.
Why the hybrid network? One of the biggest criticisms of blockchain technology, at least in its early stages, is that blockchain transactions can take some time to process and validate. Using traditional networks, Mastercard can process transactions in nanoseconds and use the security data collected over many decades to maintain high standards of security.
But this does not mean that Mastercard also gave up blockchain as an alternative. In October 2017, the company offered the possibility to select banks and traders to send traditional currencies on blockchain networks. Essentially, the opposite of the hybrid network I have described. Mastercard does not intend to introduce another cryptocurrency into the mix. Rather, it intends to try to incorporate the safety and immutability of the blockchain using existing currencies.
To be clear, blockchain projects like these are a work in progress that will probably take years to materialize in tangible results. But with Mastercard laying the foundations of the blockchain revolution, it is a company that investors would be wise to monitor in November.
Image source: Getty Images.
Big Blue is big in the blockchain
Keith Speights (International Business Machines): It's hard to take into account the number of times IBM has been erased as a dinosaur that could not compete in the midst of new technological advances. Yet the technology giant always seems to find a way to adapt. And Big Blue is big in the blockchain.
For example, Walmart announced in September that it intends to request some of its suppliers to use the blockchain-based IBM Food Trust platform. IBM has developed the system for tracing food products to their suppliers of origin, which is vital when epidemics of foodborne diseases occur.
This is just an example, though. Bloomberg reported in July 2018 that the main technology provider in terms of customer blockchain spending is – you guessed it – IBM. Big Blue has claimed a market share of 32%, well above its competitors.
But blockchain is not the main reason why I think IBM is a title to keep an eye on in November and beyond. I'm intrigued by the IBM pending acquisition Red Hat (NYSE: RHT). It's a huge deal that makes IBM even bigger in the arenas of Linux and cloud software. I do not think that IBM is necessarily a stock to be purchased again because of the failed purchase of Red Hat, but I think this supposed dinosaur could simply keep investors surprising.
Image source: Getty Images.
A hidden blockchain winner
Brian Feroldi (Broadridge Financial Solutions): Most investors have never heard of Broadridge Financial Solutions, but the odds are extremely good that they benefited from the company's services without even knowing it. Broadridge holds an almost monopolistic position in the investor communications sector. Scores of publicly traded companies rely on Broadridge to send regulatory documents such as proxies, annual reports, and more to their investors.
The Broadridge management team believes that the integration of blockchain technology into its core business could have huge implications for its business over time. Blockchain could help to significantly reduce the cost of tracking ownership of resources while increasing security. It could also greatly facilitate investor communication with greater speed and accuracy than today. The company has invested in space for a few years to speed up the process.
As investors wait for those investments to pay, they can rest assured of owning a stable business that throws free cash flow flows that are regularly used to reward shareholders.
BR Dividend data by YCharts
Wall Street currently believes that Broadridge will be able to grow its gains by 13% a year over the next five years through a combination of customer gains, price increases, margin improvements and fewer shares. Launch a dividend yield of 1.7% and the long-term potential of the blockchain serves as icing on the cake.
Brian Feroldi owns Broadridge Financial Solutions and Mastercard shares and has the following options: short January 2021 $ 180 on IBM, short January 2021 $ 175 on IBM, long January 2020 $ 170 on IBM and short January 2020 at $ 170 on IBM . Keith Speights has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. Motley Fool owns shares and recommends Broadridge Financial Solutions and Mastercard. Motley Fool has a disclosure policy.
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